Combination of factors adding up to higher airfares

United Airlines has been a leader in launching new services that fliers would be willing to
pay for.

United Airlines has been a leader in launching new services that...

Widespread airfare increases do not occur by magic.

They're mostly the result of a pack mentality: A single airline strays from the group, increasing some or all of its base fares, and waits to see if its competitors follow suit. If not everyone does, the airlines end up returning.

Last year, a U.S. airline broke from the pack more than a dozen times, and, about half the time, everyone else followed. The result was a nearly 5 percent increase in overall airfares, domestic and international.

So far in 2013, United Airlines has been the one straying from the group, initiating a systemwide one-way fare increase of $2 to $5 with partner Air Canada just days into the new year, and another distance-based roundtrip hike of $4 to $20 last week.

Though most airlines declined to match, leading United to rescind many of the increases, fliers can expect more hikes to stick in 2013. Aviation experts are nearly unanimous in predicting at least as many increases as last year.

More Information

New fees: Travelers can expect new or higher fees, even for some services that are now free. Some experts say airlines could start to charge for carry-on bags.

Route cuts: Major airlines will continue cutting service to smaller domestic markets. They will also use fewer regional jets, which are less fuel-efficient.

Higher profits: As the economy improves and airlines get better at filling seats and charging fees, they will continue to see profit margins grow.

More discounters: Look for more routes from low-fare, high-fee airlines such as Spirit, Allegiant and Frontier.

The annual average fares

Roundtrip domestic airfares, U.S. airlines, 2000-2012

2000:$352

2001:$328

2002:$325

2003:$314

2004:$308

2005:$316

2006:$342

2007:$341

2008:$363

2009:$331

2010:$363

2011:$391

2012:$409 (up 4.6 percent from 2011 and 16.2 percent since 2000)

International roundtrip airfares, U.S. airlines, 2006-2012

2006:$399

2007:$395

2008:$429

2009:$383

2010:$421

2011:$458

2012:$494 (up 7.9 percent from 2011 and 23.8 percent since 2006)

Note: Hotwire.com travel website describes decreases in 2007 and 2009 as "recession-related," but calls the last three increases "pretty significant ... considering inflation is usually only 2 percent per year."

Average annual international roundtrip airfares, U.S. airlines, 2006-2012

2006: $399

2007: $395

2008: $429

2009: $383

2010: $421

2011: $458

2012: $494 (up 7.9 percent from 2011 and 23.8 percent since 2006)

Note: Hotwire.com travel website describes decreases in 2007 and 2009 as "recession-related," but calls the last three increases "pretty significant ... considering inflation is usually only 2 percent per year."

New fees: Travelers can expect new or higher fees, even for some services that are now free. Some experts say airlines could start to charge for carry-on bags.

Route cuts: Major airlines will continue cutting service to smaller domestic markets. They will also use fewer regional jets, which are less fuel-efficient.

Higher profits: As the economy improves and airlines get better at filling seats and charging fees, they will continue to see profit margins grow.

More discounters: Look for more routes from low-fare, high-fee airlines such as Spirit, Allegiant and Frontier and international carriers such as Emirates, Qatar and Turkish.

"It would not surprise me to see another seven hikes this year and maybe more," airfare expert Rick Seaney writes.

Fuel as a driver

The primary reason is the price of jet fuel, airlines' single largest expense.

Seaney says fliers shouldn't expect to see airfares decrease "unless the price of a barrel of oil drops to the $70 to $75 range," which seems unlikely.

Oil prices currently hover around $95 a barrel.

"Airlines are going to do everything they can to push through higher fares," said Henry Harteveldt, an industry consultant.

High fuel prices have also led airlines to reduce their use of regional jets, which are smaller and less fuel-efficient than new planes.

Fewer seats

Another factor that will drive fare increases is airlines' continued reduction in available seats. After weathering a decade that began with the Sept. 11 attacks and ended with a recession, airlines have regained their financial footing largely by getting better at filling up their jets. Empty seats have become, and will remain, rare.

"Given continued industry supply discipline, particularly in the first half of 2013, we expect a continued inching up of domestic fares in coming months, accompanied by an overall reduction in promotional sale activity," JPMorgan airline analyst Jamie Baker wrote in a note to investors after United's first un- successful attempt to raise airfares.

In a news release earlier this month, the parent company of German carrier Lufthansa touted a 2.4 percent increase in traffic in 2012 on its four subsidiary airlines, attributing the success to cutting capacity and filling more seats.

"The entire airline industry is doing the same thing," said George Hobica, another airfare expert.

Translator

To read this article in one of Houston's most-spoken languages, click on the button below.

As that process continues, Harteveldt said he anticipates further domestic route cuts. But he also said he expects airlines to add some long-haul ones, and that he'll be watching to see whether they reinstate direct flying between non-hub airports like Austin-Bergstrom International and tech cities in California.

"If we see that, I think it's actually a sign the economy is improving," Harteveldt said.

Another factor that will lead to higher fares is consolidation. A merger between AMR Corp., the bankrupt parent of American and American Eagle airlines, and US Airways is considered by many experts to be likely or highly likely.

Along with more fare increases, experts say U.S. fliers can expect to experience more of what they did in 2012, with some twists: New and higher fees, route cuts to smaller cities and short-haul destinations, and lots of fancy new airplanes.

While experts say big carriers may be looking to add more fees to services that were previously free - maybe even for carry-on luggage, at some point - they are also looking to launch cool new services that fliers would be willing to pay for.

Chicago-based United, the world's largest carrier after its merger with Houston's Continental Airlines, has taken the lead.

Earlier this month, United announced a new service at some U.S. airports including Houston's Bush Intercontinental, its largest hub, where fliers can have luggage delivered to their final destination as long as long as it is within 100 miles of the airport.

Days later, United announced it had equipped the first of its long-haul jets, a Boeing 747, with satellite-based WiFi.

In a news release, the carrier said it would outfit 300 of its international planes with the faster, more reliable Internet access.

Bundling of fees

Fliers will have a choice between faster and slower connections, with different price tags.

Experts also predict more carriers this year will increasingly bundle fees with airfares, as American Airlines has done, so that the total cost is lower than it would be if you purchased each item separately.

As airfares increase, some experts are predicting that fewer people will fly, or at least more will travel on discount carriers such as Spirit, Frontier and Allegiant.

"They're high-fee, bare-bones, but have very, very low fares, so we're going to see them grow especially as fares on other airlines increase domestically," Hobica said, noting those airlines "are the only true low-cost carriers left."

In expansion mode

Many experts also believe foreign airlines such as Emirates and Qatar Airways, which have garnered high flier approval ratings, will expand.

"Unlike the United States, where the secretary of transportation acts as if airlines are public enemies, the gulf countries have a supportive aviation policy," writes consultant Darryl Jenkins, noting that Emirates - with a sizable fleet of wide-body jets, and many more on order - has the capacity to expand to large markets "for another decade or two."